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Income Taxes | 12 Months Ended
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Dec. 31, 2014
Income Taxes | 15. Income Taxes The components of income from continuing operations before income taxes and noncontrolling interests were as follows:
(In millions) |  | 2014 |  |  | 2013 |  |  | 2012 |
Domestic operations |  | $ | 301.4 |  |  | $ | 243.8 |  |  | $ | 77.0 |
Foreign operations |  |  | 90.5 |  |  |  | 66.7 |  |  |  | 58.2 |
Income before income taxes and noncontrolling interests |  | $ | 391.9 |  |  | $ | 310.5 |  |  | $ | 135.2 |
A reconciliation of income taxes at the 35% federal statutory income tax rate to the income tax provision reported was as follows:
(In millions) |  | 2014 |  |  | 2013 |  |  | 2012 |
Income tax expense computed at federal statutory income tax rate |  | $ | 137.2 |  |  | $ | 108.7 |  |  | $ | 47.3 |
Other income taxes, net of federal tax benefit |  |  | 7.2 |  |  |  | 7.0 |  |  |  | 3.0 |
Foreign taxes at a different rate than U.S. federal statutory income tax rate |  |  | (13.4 | ) |  |  | (10.1 | ) |  |  | (7.1 | )
Tax effect on foreign dividends |  |  | — |  |  |  | — |  |  |  | 12.4 |
Tax benefit on income attributable to domestic production activities |  |  | (7.6 | ) |  |  | (5.2 | ) |  |  | (2.1 | )
Net adjustments for uncertain tax positions |  |  | 4.7 |  |  |  | 3.0 |  |  |  | (11.1 | )
Net effect of rate changes on deferred taxes |  |  | (0.7 | ) |  |  | (1.6 | ) |  |  | (0.3 | )
Prior period items |  |  | — |  |  |  | — |  |  |  | (3.2 | )
Valuation allowance (decrease) increase |  |  | (4.1 | ) |  |  | 2.1 |  |  |  | (8.9 | )
Miscellaneous other, net |  |  | (5.0 | ) |  |  | (2.4 | ) |  |  | (3.1 | )
Income tax expense as reported |  | $ | 118.3 |  |  | $ | 101.5 |  |  | $ | 26.9 |
Effective income tax rate |  |  | 30.2 | % |  |  | 32.7 | % |  |  | 19.9 | %
The effective income tax rate for 2014 was favorably impacted by the tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction ($7.6 million), the release of valuation allowances related to state net operating loss carryforwards ($4.1 million), and a $1.8 million benefit associated with the extension of the U.S. research and development credit under the Tax Increase Prevention Act 2014. The effective income tax rate for 2013 was favorably impacted by the tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction ($5.2 million), $1.6 million of deferred tax benefits associated with the enacted repeal of the Mexican Business Flat Tax under the 2014 Mexican Tax Reform Package, and a $1.4 million tax benefit associated with the extension of the U.S. research and development credit under The American Taxpayer Relief Act of 2012. The effective income tax rate in 2013 was unfavorably impacted by an increase in the valuation allowance related to an investment impairment charge for which we could not record an income tax benefit ($2.1 million). The effective income tax rate for 2012 was favorably impacted by a tax benefit related to the final settlement of a U.S. federal income tax audit covering the 2008 to 2009 years ($11.1 million), a decrease in valuation allowance due to certain reorganization actions among our foreign subsidiaries ($8.9 million), and the tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction ($2.1 million). The effective rate in 2012 was unfavorably impacted by an income tax expense on foreign dividends ($12.4 million). A reconciliation of the beginning and ending amount of unrecognized tax benefits (UTBs) was as follows:
(In millions) |  | 2014 |  |  | 2013 |  |  | 2012 |
Unrecognized tax benefits — beginning of year |  | $ | 23.7 |  |  | $ | 20.8 |  |  | $ | 35.4 |
Gross additions — current year tax positions |  |  | 8.7 |  |  |  | 4.4 |  |  |  | 2.8 |
Gross additions — prior year tax positions |  |  | 2.2 |  |  |  | 0.7 |  |  |  | 0.6 |
Gross (reductions)/additions — purchase accounting adjustments |  |  | (1.1 | ) |  |  | 1.6 |  |  |  | — |
Gross reductions — prior year tax positions |  |  | (2.5 | ) |  |  | (3.2 | ) |  |  | (13.5 | )
Gross reductions — settlements with taxing authorities |  |  | — |  |  |  | (0.6 | ) |  |  | (4.0 | )
Impact due to expiration of statutes of limitations |  |  | — |  |  |  | — |  |  |  | (0.5 | )
Unrecognized tax benefits — end of year |  | $ | 31.0 |  |  | $ | 23.7 |  |  | $ | 20.8 |
The amount of UTBs that, if recognized as of December 31, 2014, would affect the Company’s effective tax rate was $27.0 million. It is reasonably possible that, within the next twelve months, total UTBs may decrease in the range of $2.0 million to $7.0 million primarily as a result of the conclusion of U.S. state and foreign income tax proceedings. We classify interest and penalty accruals related to UTBs as income tax expense. In 2014, we recognized an interest and penalty expense of approximately $0.5 million. In 2013, we recognized an interest and penalty benefit of approximately $0.2 million. In 2012, we recognized an interest and penalty benefit of approximately $1.7 million, primarily driven by audit resolutions. At December 31, 2014 and 2013, we had accruals for the payment of interest and penalties of $10.7 million and $9.9 million, respectively. We file income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by the U.S. Internal Revenue Service (“IRS”) for the periods related to 2010 through 2012. We have tax years that remain open and subject to examination by tax authorities in the following major taxing jurisdictions: Canada for years after 2009, Mexico for years after 2006 and China for years after 2010. Income taxes in 2014, 2013 and 2012 were as follows:
(In millions) |  | 2014 |  |  | 2013 |  |  | 2012 |
Current |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 86.9 |  |  | $ | 96.3 |  |  | $ | 16.7 |
Foreign |  |  | 12.3 |  |  |  | 12.5 |  |  |  | 12.8 |
State and other |  |  | 12.0 |  |  |  | 11.1 |  |  |  | 1.8 |
Deferred |  |  |  |  |  |  |  |  |  |  |  |
Federal, state and other |  |  | 2.7 |  |  |  | (20.2 | ) |  |  | 1.5 |
Foreign |  |  | 4.4 |  |  |  | 1.8 |  |  |  | (5.9 | )
Total income tax expense |  | $ | 118.3 |  |  | $ | 101.5 |  |  | $ | 26.9 |
The components of net deferred tax assets (liabilities) as of December 31, 2014 and 2013 were as follows:
(In millions) |  | 2014 |  |  | 2013 |
Deferred tax assets: |  |  |  |  |  |  |  |
Compensation and benefits |  | $ | 32.5 |  |  | $ | 32.8 |
Defined benefit plans |  |  | 83.9 |  |  |  | 40.8 |
Capitalized inventories |  |  | 10.9 |  |  |  | 10.8 |
Accounts receivable |  |  | 7.5 |  |  |  | 6.3 |
Other accrued expenses |  |  | 17.2 |  |  |  | 12.9 |
Net operating loss and other tax carryforwards |  |  | 15.8 |  |  |  | 24.4 |
Valuation allowance |  |  | (12.0 | ) |  |  | (19.8 | )
Miscellaneous |  |  | 3.7 |  |  |  | 14.3 |
Total deferred tax assets |  |  | 159.5 |  |  |  | 122.5 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
LIFO inventories |  |  | (9.3 | ) |  |  | (9.1 | )
Fixed assets |  |  | (60.6 | ) |  |  | (55.1 | )
Identifiable intangible assets |  |  | (205.0 | ) |  |  | (208.4 | )
Miscellaneous |  |  | (1.7 | ) |  |  | (7.2 | )
Total deferred tax liabilities |  |  | (276.6 | ) |  |  | (279.8 | )
Net deferred tax liability |  | $ | (117.1 | ) |  | $ | (157.3 | )
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the consolidated balance sheets as of December 31, 2014 and 2013 as follows:
(In millions) |  | 2014 |  |  | 2013 |
Other current assets |  | $ | 33.8 |  |  | $ | 40.0 |
Other current liabilities |  |  | (2.4 | ) |  |  | (0.5 | )
Other assets |  |  | 2.1 |  |  |  | 0.6 |
Deferred income taxes |  |  | (150.6 | ) |  |  | (197.4 | )
Net deferred tax liability |  | $ | (117.1 | ) |  | $ | (157.3 | )
As of December 31, 2014 and 2013, the Company had deferred tax assets relating to net operating losses and other tax carryforwards of $15.8 million and $24.4 million, respectively, of which approximately $0.8 million will expire between 2015 and 2019, and the remainder which will expire in 2020 and thereafter. The Company has provided a valuation allowance to reduce the carrying value of certain of these deferred tax assets, as management has concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized. The undistributed earnings of foreign subsidiaries that are considered indefinitely reinvested were $224.7 million at December 31, 2014. A quantification of the associated deferred tax liability on these undistributed earnings has not been made, as the determination of such liability is not practicable. In October, 2011, we separated from our Former Parent. During 2012, we analyzed the subsidiary legal and capital structures inherited from our Former Parent to assess their compatibility with our strategies as a new independent company. Based on this analysis, in the fourth quarter of 2012, we committed to a plan to reorganize certain foreign subsidiaries and adjust their capital structures to better align with our business strategy as a new independent company. As part of this plan, we committed to a non-recurring remittance of certain foreign earnings and recorded an associated tax liability of $12.4 million. The remaining portion of this liability as of December 31, 2014 is $2.8 million. We have not provided deferred income taxes on the remaining undistributed earnings of foreign subsidiaries. In general, under the Tax Allocation Agreement that we entered into with our Former Parent, Fortune Brands is responsible for all taxes to the extent such taxes are attributable to the Home & Security business, and we agreed to indemnify our Former Parent for these taxes. Our Former Parent will be responsible for all taxes to the extent such taxes are not attributable to the Fortune Brands business and our Former Parent has agreed to indemnify us for these taxes. Though valid as between the parties, the Tax Allocation Agreement will not be binding on the IRS or other taxing authorities.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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